How Precious Metals Will Replace Fiat Money

After getting hammered in the first two hours of Far East trading yesterday, gold bottomed out at precisely 9:00 a.m. Hong Kong time...and then spent the rest of Thursday climbing out the fifteen dollar hole that was dug for it at that time.

At 11:00 a.m. in New York, the gold price reached $1,405 spot...and that was as high as it was allowed to go, despite how poorly the dollar was doing. Gold basically traded sideways for the rest of the day...and closed up a couple of dollars from Wednesday.

Silver got sold off about fifty cents during the first four hours of the Far East trading day, before beginning a rather shaky rally that ended at the close of trading in London...which is 11:00 a.m. in New York. From its high of $34.68 spot, silver got sold off...and actually closed a few pennies below it's Wednesday close.

The dollar, which has had an interesting ride this week, put in another schizophrenic performance yesterday. This all has to do with the blow-up of the Japanese yen carry trade. This is what Bill King over at the King Report had to say about it in his column yesterday morning..."Despite the Bank of Japan doing the equivalent of 70% of the U.S. QE 2.0 in only four sessions [~$420B], the yen is surging after an initial decline on the BoJ’s record promiscuity due to the enormous demand for yen to cover current and future costs associated with Japan’s crises and speculative shorts [yen carry].

"The surging yen is killing global speculators due to over-reliance on the yen carry trade. The roaring yen is forcing speculators that borrowed in yen to take advantage of the BoJ’s zero interest rate policy to unload levered positions in commodities, forex and stocks…The forex market is in disarray."

Here's yesterday's dollar chart...

Here's a Bloomberg story on this very thing that showed up in a GATA release yesterday. The GATA headline reads "Western central banks join Japan's in rigging yen market". Without a doubt, this intervention began on Sunday night in New York...which was Monday morning in Japan. The dollar has been all over the map since...and the precious metal prices have been kept on a tight leash. This is a must read...and the link is here.

There was also a story about this posted in The Telegraph in the wee hours of this morning in London. Roy Stephens sent the story along which is headlined "Japan crisis prompts first joint currency intervention since 2000 amid threat to global recovery". The link is here.

And here's the dollar graph for the entire week so far...right from the Far East open on Sunday night Eastern time.

You can forget about any co-relation between the dollar and gold price. With the firestorm of global money printing that started this week, along with the massive interventions in the world's currency markets, all bets are now off. It will be interesting to see how long they can keep the lid on the gold and silver prices going forward. So far, JPMorgan et al have done a pretty reasonable job.

While on the subject of making up money out of thin air...here's a graph of the Fed's Adjusted Monetary Base that was sent to me by BIG GOLD editor Jeff Clark last night. Jeff noted that the monetary base is at another new record, $2.35 trillion, and is up 18.7% just since New Year's eve, and 39.2% since December 2008.

The gold stocks, although finishing in slightly positive territory, basically traded sideways for the entire day...very much like the gold price itself. The silver stocks, even though the price finished down on the day, did several [to many] orders of magnitude better then their golden cousins.

The CME's Daily Delivery Report showed that 22 gold and zero silver contracts were posted for delivery on Monday. Zero was not a number that I was expecting. We're starting to run out of room in the March delivery month...so it's getting close to crunch time in silver. Stay tuned.

There were no reported changes in either GLD or SLV...and the U.S. Mint had no sales report, either.

But it was an entirely different story over at the Comex-approved depositories on Wednesday, as they reported receiving a whopping 2,053,402 troy ounces of silver...and didn't ship out a single good delivery bar. I would guess that we'll see some deliveries off the exchange in short order. The link to the action is here.

When I looked at the above warehouse stocks just now, somehow the spread sheet looked different than it normally does, but I didn't stop to investigate. An e-mail from Nick Laird about five minutes after I wrote the previous paragraph, pointed out what the difference was.

JPMorgan has just been added as a fifth depository for gold, silver and the PGMs. They don't have any metal yet...but that's only a matter of time.

¤ Critical Reads

As recall wave builds, Miami-Dade Mayor Carlos Alvarez first to go

Along with the two I've already posted above, I have a lot of other stories for you today.

Today's first story is from reader Tom Textor...and it's out of the Wednesday edition of The Christian Science Monitor. Two years after winning in a landslide, Miami-Dade Mayor Carlos Alvarez, the chief of some 2.5 million people in south Florida, lost his seat Tuesday in a recall vote after raising taxes and boosting the pay of public-sector union employees. The link is here.

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US Cost of Living Hits Record, Passing Pre-Crisis High

The next item is a piece that was posted over at cnbc.com yesterday...and was sent to us by reader Scott Pluschau. A special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February, according to data released Thursday, surpassing the old high in July 2008. It's a longish read, but I don't think you'll have to read to the very end before you get the gist of it...and the link is here.

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Revealed: US spy operation that manipulates social media

Here's a very disturbing story that was sent to me by reader "Jivasattha" that was posted in The Guardian yesterday. The U.S. military is developing software that will let it secretly manipulate social media sites such as Facebook and Twitter by using fake online personas to influence internet conversations and spread pro-American propaganda. It's a fairly long story...and if this sort of thing is of interest, it's certainly worth the read...and the link is here.

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Does the Japan Disaster Mean QE3 for the Fed?

Here's a 3-part interview with James Grant of Grant's Interest Rate Observer that was done on Canada's Business News Network on Wednesday. The headline pretty much sums up the content of the interview...and I thank reader Barnabe Geis for sharing it with us. It's very much worth listening to...and the link is here.

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The Fries Revolution: Belgium's Political Crisis Foretells EU's Future

Here's a rather important piece that was sent to me by reader Roy Stephens yesterday...and it's a posting on the German website spiegel.de. As bad as the situation is with the PIIGS...simmering just under everyone's radar screen is the situation in Belgium. I've run stories on this before...and this one shows just how serious the problems are.

Brussels is home to two political arenas, a small one and a large one, which are located just a short walk apart. In the dark, winding corridors of the Belgian parliament, Dutch-speaking representatives from Flanders in northern Belgium are locked in a stalemate with their French-speaking counterparts from the southern region of Wallonia that could tear their kingdom apart.

It's a long read...but if you want an education...this is certainly worth your time...and the link is here.

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U.S. Mulls Libya Air Strikes Ahead Of Battle For Benghazi

Here's another Roy Stephens offering. It's a Reutersstory posted over at The Huffington Post. Libyan government soldiers battled rebels on the road to the insurgent stronghold of Benghazi on Thursday as the United States raised the possibility of air strikes to stop Muammar Gaddafi's forces. But the international debate on what action to take may have dragged on too long to help the anti-Gaddafi uprising, now struggling to hold its ground one month after it started. The link is here.

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Japan Admits Nuclear Problem Is 'Severe'

The admission comes as plant operator Tokyo Electric Power Co [Tepco] continues attempts to stop the six-reactor Fukushima 1 complex from going into nuclear meltdown. "[It's] the beginning of the catastrophic phase...maybe we have to pray" said the president of the Society for Radiation Protection. Prayer won't do a lot of good under these circumstances, I'm afraid. I thank Washington state reader S.A. for sharing this story...and the link to the story [and several imbedded videos] is here.

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One of the Speculative Opportunities of the Decade: Rick Rule

Eric King sent me this Rick Rule blog yesterday evening. It's all about gold, silver...and uranium. When asked about silver specifically, Rule remarked, “Dollar demand for silver is outpacing dollar demand for gold. I keep hearing that there could be problems in near term futures delivery, that is more metals stood for physical delivery than the market has the ability to produce. Certainly the events of the last 90 or 120 days in terms of physical metal being withdrawn from the market has impacted the ability of mints like the Royal Canadian Mint and the US Mint to buy silver strip or coin stock. So you’re seeing the inability of dealers to get as much silver coin or silver bar as buyers have demanded.” This is definitely worth the read...and the link is here.

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How Precious Metals Will Replace Fiat Money

Here's a gold-related story that I stole from a GATA release yesterday. The international fractional-reserve banking system carries the seeds of its own destruction and the world will revert to the monetary metals as the basis of a payment system, economist and former banker Alasdair Macleod wrote yesterday. His commentary is posted at his Internet site...financeandeconomics.org...and the link is here.

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Gold Price Management 101

Here's a GATA release of an essay that's posted over at The Daily Reckoning. The author, Greg Canavan writes: "If you think the gold price is not 'managed' by central banks, then you're really not looking hard enough. This is a must read...and the link to the GATA release is here.

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It's only a matter of time before the global banking system unravels. For those of us planning for life after such an event, it is time to think what might replace fractional reserve banks and the paper money that is their stock in trade.- Alasdair Macleod

Despite the fact that the U.S. dollar fell almost a full percent from its high to its low on Thursday...there was almost no gold price reaction worth mentioning...although if you examine the Kitco gold chart at the top of this column, you'll note that any attempted rally, no matter how small, got sold off...plus the fact that the bullion banks dug gold an enormous hole at the Far East open as well.

Volume in gold was very light yesterday...around 135,000 contracts net of all roll-overs. The preliminary open interest number looks wonderful...and using the past as prologue, I'd say that we'll see a huge drop in gold's open interest when the final numbers are posted on the CME's website later this morning.

Gold's final change in open interest for Wednesday's trading day showed a decline of 3,912 contracts.

Silver's volume was a bit over 75,000 contracts net on Thursday...and the preliminary open interest number was another positive shocker...in the same category as gold's. Tomorrow's final report should be an education.

Silver's final open interest number on Wednesday showed a decline of 1,179 contracts.

March open interest shows that 1,054 contracts are still sitting there waiting for delivery...which is 25 contracts less than yesterday. That's why the 'zero contracts delivered' for silver in the CME's report is so amazing. What are the shorts waiting for? Maybe the final number this morning will show an 'adjustment'? We'll find out soon enough.

The situation with the silver backwardation issue remains unchanged...like it's been all week.

Today at 3:30 p.m. Eastern sharp, we get the latest Commitment of Traders report for positions held at the close of trading on Tuesday, March 15th. Although it will certainly show an improvement in both gold and silver, I'm of the opinion that a lot of Tuesday's activity was not reported in a timely manner. Withheld might be a better choice of words.

Gold...and especially silver...rose during Far East and early London trading during their Friday...despite the fact that the dollar was up a bit. Volume in both metals is nothing special as of 4:53 a.m. Eastern.

It might be a real interesting day during the Comex trading session in New York.

There's still a bit of time left to either readjust your portfolio...or get fully invested in the continuing major up-leg of this bull market in both silver and gold...and I respectfully suggest that you take a trial subscription to either Casey Research's International Speculator [junior gold and silver exploration companies], or BIG GOLD [large producers], with all our best [and current] recommendations...as well as the archives. A subscription to the International Speculator also includes a free subscription to BIG GOLD as well. And don't forget that our 90-day guarantee of satisfaction is in effect for both publications.

Enjoy your weekend...and I'll see you here tomorrow.